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Efficiency and Expectations Revisited: A Foreign Exchange Market with Bayesian Players


  • Christodoulakis, Nikos
  • Kalyvitis, Sarantis C
  • Karamouzis, Nick


The paper re-examines the efficiency hypothesis in the foreign exchange market. The traditional efficiency testing equations are reviewed and a model is developed that incorporates Bayesian revisions in the form of devaluation expectations. A number of propositions regarding the pattern of the coefficients in efficiency testing equations are established. The results are confirmed by the empirical estimation of the model for the Greek foreign exchange market.

Suggested Citation

  • Christodoulakis, Nikos & Kalyvitis, Sarantis C & Karamouzis, Nick, 1994. "Efficiency and Expectations Revisited: A Foreign Exchange Market with Bayesian Players," CEPR Discussion Papers 1016, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1016

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    More about this item


    Bayesian Learning; Devaluation; Efficiency; Expectations; Unbiasedness;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange


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